GBP Back in Demand
It’s been a noteworthy period of late for GBP, the UK currency has been in fimr favour over the last two months as the government’s reopening has ticked along nicely and the vaccination program has continued to progress. With the UK now looking forward to the final step of reopening panned for June 17th, the big question is whether the recent rise in the Indian variant in the UK will derail these plans?
Vlieghe Turns Hawkish
The British Pound has seen a renewed surge in buying over the Asian session and early European session so far today. The move comes in response in response to surprisingly hawkish comments yesterday from BOE policymaker Dr Gertjan Vlieghe. Vlieghe, who has previously been known to be a prominent dove within the BOE camp caught the market off-guard as he laid out a set of scenarios for the UK economy which might lead the BOE to need to raise rates as early as next year. In these scenarios, Vlieghe sees inflation surpassing the BOE’s inflation target in a more sustained way than the BOE’s central projections.
UK Backdrop Improving Sharply
The shift in view (from dove to hawk) has caught the market’s attention and has ben interpreted as a sign of just how quickly the fundamental backdrop in the UK is improving.
The reopening underway in the UK has move along according to schedule so far and has been met with a surge in activity. Recent PMIs have confirmed the uptick in economic momentum, particularly in the services sector which had been hardest hit, as businesses began increasing output in line with the reopening. Inflation expectations have been on the increase and with the latest CPI reading showing that consumer prices more than doubled in April, some traders are anticipating inflation to outstrip the BOE’s central projection. If the BOE’s guidance turns more hawkish in the coming months, this should see GBP continue to trade higher.
COVID Risks Remain
However, as we know, there are still downside risks. The biggest of these risks is linked to the final reopening of the economy on June 21st. The UK is set to remove social distancing measures and allow for full indoor hospitality (gigs, clubs, parties etc) to return. However, with COVD cases starting to creep back up again, most notably the Indian variant which is more contagious, there are concerns that the date will be delayed. If this is the case, GBP is likely to see sharp unwinding.
Technical Views
The breakout in GBPAUD as per a recent Market Spotlight, continues to gather pace. The retest of the broken 1.8203 level has seen fresh buying enter the market with price now above the 1.8316 level. The bull channel top is acting as resistance for now, though, while 1.8203 holds as support, 1.8416 remains the target.
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Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.